November 12, 2013

Bill Clinton Is Wrong. This Is How Obamacare Works.

Bill Clinton has been one of Obamacare’s most effective advocates—the "Secretary of Explaining Things," as President Obama famously called him. But in a new interview already getting attention and sure to get more, Clinton didn't explain things very well. He made a statement that's likely to create some misimpressions about the possibilities of health care reform, while giving the administration and its allies yet another political headache. But maybe it's also an opportunity to have a serious conversation about the law's tradeoffs—the one that should have happened a while ago.

In the interview, with Ozy Media, the former president fielded a question about the health care law. “The big lesson,” he said, “is that we’re better off with this law without it.” He went on to put the technological problems of healthcare.gov into some perspective: Medicare Part D had similar problems, he noted, “and they fixed it.” And he made a plea with Republican lawmakers to stop blocking the expansion of Medicaid. Fine, fine, and fine.

But then Clinton made news. He said that some young people facing higher premiums under the new system should have the right to keep their old plans, even if it requires a change in the law. Clinton framed it carefully: He said specifically he had in mind only those young people whose incomes were higher than four times the poverty line, making them ineligible for subsidies. (That’s about $45,000 for a single adult.) But he also suggested it was a matter of principle, because those people had heard the vow that they could keep their plans: “I personally believe, even if it takes a change to the law, the president should honor the commitment the federal government made to those people and let them keep what they got.”

Clinton’s statement makes it seem as if there is some simple way to let people keep their current plans—to avoid any disruption in the existing non-group market while still delivering the law’s benefits. As readers of this space know, no such magic solution exists. Broadly speaking, the Affordable Care Act seeks to make two sets of changes to what’s called the “non-group” market. It establishes a minimum set of benefits, which means everything from covering “essential” services to eliminating annual or lifetime limits on payments. At the same time, the law prohibits insurers from discriminating among customers: They can’t charge higher prices, withhold benefits, or deny coverage altogether to people who represent medical risks. They have to take everybody, varying price only for age (within a three-to-one ratio) and for tobacco use.

If you buy your own insurance now, it probably doesn't live up to these standards. For starters, it probably isn’t as comprehensive as you think. It may not cover prescription drugs, for example, or it might leave out rehabilitative services and mental health. It might expose you to out-of-pocket expenses greater than $6,350 (if you have a single person’s policy) or a $12,700 (if you have a family policy). Until three years ago, when Obamacare’s first regulations went into effect, it was even possible the insurer could yank it retroactively—a process known as “rescission”—if you got sick and the carrier scrubbed your medical records for some previous sign of illness, maybe even one you didn’t know you had.

In addition, unless you live in a handful of states, the premiums you are paying come from insurers who knew, going in, they wouldn’t have to cover people who represent high medical risks. If the policy is affordable, that’s because the insurer figured you were pretty healthy and unlikely to have big medical bills. If you’ve had the policy for a while, and prices haven’t gone way up, that’s because the insurer is still making money from this arrangement—which means, overall, the people in this plan aren’t very sick. Until now, insurers have been able to hike premiums on plans that start to lose healthy customers, and they keep doing so until they become unaffordable—leaving those remaining subscribers unable to find new policies at affordable rates.

The Affordable Care Act includes a so-called grandfather clause. That allows insurers to keep renewing plans, without changes or benefits and prices, as long as they were available before March 2010, when the Affordable Care Act became law. But the non-group market is volatile: Very few people stay on plans for more than two years anyway. And the grandfather clause is narrow, by design: If insurers made even modest changes, the protection goes away. Those plans are subject to the new regulations that take effect in January. As a result, the majority of people who buy insurance on their own are learning they can’t have what they had before, even though Obama promised everybody they could. Either their premiums are going up, as insurers accommodate the new regulations, or the plans are disappearing altogether. In those cases, people have to find new plans. And the sticker price of what they’ll find is higher than what they pay now.

This is not a glitch or an accident. This is the way health care reform is supposed to work. And it’s important to put these changes into context. For one thing, it’s a small number of people relative to the population as a whole. The vast majority of Americans get coverage through employers or a large government program like Medicare. These changes don’t really affect them. The law also anticipates these changes by, among other things, offering tax credits that discount the premiums—in many cases, by thousands of dollars. (Other provisions of the law, like a limit on insurance company profits and overhead, should restrain prices more.) As a result, many people buying coverage on their own will be paying less money for benefits that are as good, if not better, than what they have now.

But there are real people who must pay more and, in some cases, put up with less. Some of them are people walking around with junk insurance, the kind are practically worthless because they pay out so little. Some of them are young people, particularly young men, whom insurers have coveted and wooed with absurdly low premiums—and make too much money to qualify for substantial subsidies. And some of them are reasonably affluent, healthy people with generous, open-ended policies that are hard to find even through employers. Insurers kept selling them because they could restrict enrollment to healthy people. Absent that ability, insurers are canceling them or raising premiums so high only the truly rich can pay for them.

Those people are the ones everybody is hearing about now, partly because they are a compelling, sometimes well-connected group—and partly because, absent a well-functioning website, stories of people benefitting from the law’s changes aren’t competing for attention. It’s impossible to know how big this group is. The data on existing coverage just isn’t that good. The anecdotes are frequently, although not always, more complicated than they seem at first blush. It’s probably one to two percent of the population, which doesn’t sound like much—except that, in a country of 300 million, that’s 3 to 6 million people. Most experts I trust think they represent a minority of people buying coverage on their own, but nobody can say with certainty.

Is that a worthwhile tradeoff for reform? Obviously that’s a matter of opinion. The fact that some people—even a small, relatively affluent group—are giving up something they had makes their plight (genuinely) more sympathetic. They are right to feel burned, since Obama did not make clear his promise might not apply to them. And there’s a principled argument about whether people should be responsible for services they’re unlikely to use presently, whether it’s fifty-something year olds paying for maternity care or twenty-something year olds paying for cardiac stress tests.

But the principle of broad-risk sharing—of the healthy subsidizing the sick, of the young subsidizing the old, and everybody paying for services like pediatrics and maternity care—is one built into the insurance most Americans already have. Employers, after all, don’t charge employees different premiums because of their age or gender. What’s more, the people with good, affordable coverage in the old non-group market were the beneficiaries of a system that marginalized many more. They were paying relatively cheap rates for insurance only because insurers trusted they were unlikely to get sick. Of course, some of them did get sick. And when it happened, many made an unpleasant discovery: The policies they carried left them exposed to huge bills. Giving up these plans isn’t merely an act of altruism. It’s also an act of enlightened self-interest.

Oddly, Clinton himself recognized this: In his soliloquy, he mentioned that a young man he met was upset at having to pay more for a plan—even though the young man knew it would help him more if he got sick. As Clinton surely knows, the whole point of reform—not just the pricing and benefit requirements, but also the individual mandate, which Clinton has repeatedly endorsed—is that people need to take steps to protect themselves against future hardship.

Rhetorically, Clinton’s statement actually isn’t that different from what Obama said in his interview with NBC's Chuck Todd the other night—that he’d like to find a way to let more people keep their coverage. But it wouldn't be easy to do. Attempting to rewrite the grandfather clause, so that it applies to more existing plans, could cause insurers to raise prices in 2014 for 2015. It’s also not clear that insurers could or would quickly renew existing policies at existing prices. Clinton mentioned specifically that something should be done only for those people facing higher prices—another echo of Obama’s statement. But distinguishing between groups wouldn’t be easy.

Maybe there’s some muddled, half-solution that will ease the transition without causing real damage. Or maybe there’s some brilliant administrative or legislative fix the experts can’t see. But absent an infusion of extra money—say, to create some kind of transitional assistance fund—any effort to slow changes to the non-group market might not just stop the bad things from happening. It might also stop the good. The latter might outweigh the former, by quite a lot.

You wouldn’t know it from all the press, but Obamacare actually disrupts very little relative to what it accomplishes. The problem is that eliminating disruption altogether simply isn't possible. You can’t fix health insurance without changing health insurance. And there are bound to be some people for whom that change isn’t good. Those trade-offs should be clear. Maybe now they are.